When a company is growing, the biggest hurdle is often raising enough money to expand. Owners generally have two options to overcome this. They can either borrow the money from a bank or venture capitalist, or sell part of the business to investors and use the money to fund growth. Taking out a loan is common, and very useful – to a point. Banks will not always lend money to companies, and over-eager managers may try to borrow too much initially, wrecking the balance sheet. Factors such as these often provoke owners of small businesses to issue stock. In exchange for giving up a tiny fraction of control, they are given cash to expand the business. In addition to money that doesn’t have to be paid back, “going public” [as its called when a company sells stock in itself for the first time], gives the business managers and owners a new tool: instead of paying cash for an acquisition, they can use their own stock.
To better understand how issuing stock works, let’s look at a fictional company “ABC Furniture, Inc.”
